The Big Picture Report on U.S. Manufacturing Business Conditions (September 2020)Posted by IndustryNet on Monday, September 21, 2020
Multiple economic reports out this month suggest the U.S. manufacturing sector is still on an upswing, though some key metrics have eased back. Most startlingly, industrial output, the star of the summer’s recovery, edged back sharply. However, a closer look at the numbers reveals a more hopeful picture for the sector overall. Today, we’re bringing you the big picture look at manufacturing business conditions, compiling key takeaways from various reports on output, labor, new orders, optimism and domestic sourcing. Manufacturing Output Slows as Auto Sector Loses MomentumU.S. industrial production, which had picked up a great deal of momentum in early summer, eased back in August, according to the latest report from the Federal Reserve. August’s industrial production report, out in mid-September, found output rose just 0.4%, following 5.4% and 3% increases in June and July, respectively. The Industrial Production and Capacity Utilization report, released monthly by the Federal Reserve, is a composite index that includes manufacturing, mining and utilities. Manufacturing output, taken alone, rose 1% in August. Notably, manufacturing output is 6.7% below pre-pandemic levels. Taking a closer look at the Fed’s industrial data by subsector, a decline in motor vehicle parts production accounted for reduced output, as this sector has overwhelmingly led gains since the start of the recovery. In July, output in motor vehicles rose 28%, but declined 3.7% in August. Year-over-year, motor vehicle output declined 1.9%. When eliminating the motor vehicle parts sector from the picture, manufacturing output actually improved in most sectors in August. Output gains were most visible in the non-durable goods sector, with apparel and leather up 7.8%; plastics and rubber up 3.7%; and petroleum and coal products up 2.3%. On the durable goods side, gains were posted in aerospace, up 4.2%; primary metals, up 2.1%; and furniture, up 1.8%. All other sectors reported moderate gains. Taking a year-over-year look, however, and we see a very different story, with most sectors reporting double digit decreases over last twelve months. Losses over the year were led by primary metals, down 21% over this time last year, followed by aerospace and miscellaneous transportation equipment (-18.3%); printing & support activities (-14.7%); and petroleum/coal products (-14.5%). The motor vehicle parts sector actually posted the smallest loss, down 1.9%. And did any sector actually post a gain year-over-year? The answer is yes. The computer and electronic products sector posted a robust gain of 5.5% over August of 2019. All other sectors posted losses year-over-year. Output overall is 7.3% below pre-pandemic levels. Manufacturing Hiring Stuck in NeutralHiring in the U.S. industrial sector remained stuck in neutral, with the Labor Department reporting just 29,000 new hires in manufacturing for the month of August. This is roughly the same as July’s 26,000 new jobs, but a far cry from June’s 356,000 new jobs. Jobs added in May and June of 2020 were clearly attributable to manufacturers reopening once coronavirus restrictions were lifted, but those gains have leveled off sharply. The U.S. manufacturing sector is currently 720,000 jobs short of pre-pandemic employment levels. Like output, the ease in hiring was led by the auto sector, which shed 8,400 jobs. This stands in start contrast to July’s Labor report, which found motor vehicles and parts adding 39,000 jobs. Instead, it was food manufacturing that led gains for the month of August, up 12,000 jobs, while plastics and rubber added 6,500; fabricated metals gained 5,900 jobs and furniture gained 5,700. Manufacturing Activity Expands, Led by New OrdersThe ISM’s manufacturing activity report found the sector expanded for a fourth consecutive month in August, hitting a level not seen since January of 2019. However, the increase in activity for the sector was muted compared to the record gains posted in June. U.S. manufacturing activity rose 1.8% in August, and now sits at 56%. New orders were largely responsible for the uptick in activity, soaring 6.1% to a 67.6% -- the highest recorded since January 2004. Among some of the more positive comments from respondents to the survey, one executive in the electrical equipment sector reported “strong demand from existing and new customers for our products, stable-to-decreasing input costs for our operations, and record numbers of new business opportunities from prospective customers’ reshoring measures.” Industrial production, by contrast inched up just 1.2%, though that metric is well into expansion territory. Employment, on the other hand, remained stuck in contraction territory, sitting at 46.4%, well below the 50% mark that is indicative of expansion. The employment picture did improve over however, climbing 2.1% from July’s reading of 44.3%. New York Fed Survey: Manufacturing Activity & Optimism on the RiseThe very latest in business conditions can be found in the Empire State Manufacturing Survey, released by the Federal Reserve. This data, collected between the 2nd and 9th of September, found that conditions for manufacturers improved in September at a faster rate than in August. The Fed’s manufacturing index rebounded 13 points to a new reading of 17. September ranked as the third consecutive month of expansionary readings for the sector, though activity seemed to chill in August, skirting contraction territory at a reading of 3.7. September’s rebound bodes well for the sector, suggesting the ease in output and employment may see improvement in the weeks ahead. The gain was attributed to a increase in new orders and a surge in shipments, while unfilled orders and inventories were on the decline. The optimism index, one of the most-watched metrics released by the Fed, rose for second straight month, now standing at 40.3. Notably, manufacturers responding to the survey cited plans for hire in the month ahead. The report also noted an increase in the capital expenditures index, which rose to its highest level in many months, suggesting more companies may be looking to invest in equipment and supplies in the months ahead. Search Trend Data Suggests 30% More Domestic SourcingActivity on the industrial marketplace IndustryNet, which helps buyers find suppliers in the industrial world, continues to show increased search volume over last year for U.S. parts, products and services. Comparing August 2019 to August 2020, searches for parts and products on the site increased by 30%. This is a trend that gained momentum once the pandemic began to affect supply chains globally near the start of the year, suggesting more manufacturers are looking to source or dual source stateside. An analysis of weekly search trends and popular industrial products on the site can be found here. Industrial Solutions for Changing TimesAt MNI, our mission is to help U.S. businesses thrive, providing tried-and-true prospecting and procurement solutions since 1912. Powered by trusted MNI data, IndustryNet is an industrial marketplace that connects industrial buyers with 400,000 U.S. manufacturers and suppliers of more than 10,000 types of products and services. Set up a free account, search for suppliers, send quote requests and more with this free industrial marketplace. IndustryNet is also a direct path for U.S manufacturers to increase their visibility among domestic procurers. MNI also makes it easy for industrial companies to expand into new markets. 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